VCs Raise Most Since Dot-Com Era But Are Slow to Spend It

(Bloomberg) -- Venture capital funds in the U.S. received the most money since the heady dot-com days, but they’re moving more cautiously as their investments are slow to realize returns.

The U.S. venture industry raised $41.6 billion last year, the highest since 2001, according to a report from research firm PitchBook Data and the National Venture Capital Association, a trade group. However, startup investing slowed last year, while the number of venture-backed businesses that were acquired or went public fell to the lowest level since 2010, the data showed.

While VCs are sitting on a gigantic stash, the situation puts pressure on them to help sell more of their startups this year, either to larger companies or the public markets. Otherwise, the firms may not be able to sustain fundraising growth if endowments or pension funds, which have poured cash into venture funds in recent years, start looking for opportunities elsewhere.

VCs hope to get things moving on the backs of high-profile initial public offerings anticipated this year, such as Snap Inc. Last year 726 venture-backed companies were acquired or went public, with just 39 of those in the latter category, the report said. Amid a weakening startup market in 2016, venture firms participated in 8,136 deals, compared with more than 10,000 in each of the previous two years.

“It starts to hurt your M&A opportunities if there are fewer and fewer public companies,” said Bobby Franklin, the president of the VC trade group. “For the economic well-being of the U.S., we have to make sure we have a healthy entrepreneurial ecosystem.”

This year isn’t off to a promising start. The Bloomberg U.S. Startups Barometer, an index that tracks fundraising activity and exits by private companies, has fallen 22 percent in the last month. That’s largely due to a decline in acquisitions, public offerings and young startups raising capital for the first time, according to data compiled by Bloomberg.

The unicorn era, when a growing herd of startups earned valuations of at least $1 billion from investors, may prove to be short-lived. Unicorn creation in the U.S. peaked in the third quarter of 2015, with 16 companies getting their horns, according to a separate report Wednesday from researcher CB Insights. Last quarter there were four, including OpenDoor Labs Inc. Many unicorns have seen their valuations slashed in recent quarters.